Ronald Rowe v Sunshine Developers Ltd et Al

• Jurisdiction: Jamaica
• Judge: Sinclair-Haynes, J. (Ag.)
• Judgment Date: 23 July 2004
• Judgment citation (vLex): [2004] 7 JJC 2303
• Court: Supreme Court (Jamaica)
• Date: 23 July 2004
• Docket Number: SUIT NO CL/2002 R. 095

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

IN COMMON LAW

SUIT NO CL/2002 R. 095

BETWEEN

RONALD ROWE

PLAINTIFF

AND

SUNSHINE DEVELOPERS LIMITED

1 ^ST DEFENDANT

AND

CLINTON THOMPSON

2 ^ND DEFENDANT

AND

ALF INVESTMENTS LIMITED

3 ^RD DEFENDANT

AND

MAS TRADERS LIMITED

4 ^TH DEFENDANT

AND

DERRICK P. MAHFOOD

5 ^TH DEFENDANT

AND

ANDREW ISSA

6 ^TH DEFENDANT

^{st nd}

^{rd th th}

REAL PROPERTY - Sale of properties - Claim for damages for fraud, conspiracy, breach of fiduciary duty - Application in limine to strike out claim - Whether statute barred - Whether there was a reasonable prospect of succeeding on the claim

Sinclair-Haynes, J. (Ag.)

1 Sunshine Developers Ltd. (SD Ltd), was incorporated on the 12 ^th December, 1987. Ronald Rowe, the claimant, Marjorie Rowe, his sister and Clinton and Clover Thompson, husband and wife were the shareholders and the directors of the company. Clinton Thompson was the managing director. SD Ltd. purchased properties at 67 Constant Spring Road, 26, 30 and 32 Red Hills Road in 1987 with a view to developing them. Ronald and Marjorie Rowe provided $1,000,000 of the purchase price. A loan was obtained from Mutual Security Bank. (MSB) to secure the balance. The loan was secured by SD Ltd. Mr. Rowe travelled frequently overseas. Between October, 1994 and March, 1999 Ronald Rowe was incarcerated in the USA.

2 SD Ltd ran into financial problems and was unable to proceed with the development. In 1991 it sold the lands to Derrick Mahfood for 2.6 million dollars who transferred them to ALF Investments Ltd as his nominee in July 1995. Andrew Issa is a director of ALF Investments Ltd. Derrick Mahfood, ALF investments Ltd and Andrew Issa will hereinafter be referred to as the purchasers. Through negotiations, Clinton Thompson was able to have 67 Constant Spring Road re-transferred to SD Ltd.,

3 Clinton Thompson has so far paid Ronald and Marjorie Rowe the sum of $950,000 being a part of the $1m they contributed to the purchase of the lands. Mr. Thompson had the re-transferred land valued which valuation was $4m. At the request of Mr. Rowe he offered to pay him $2m of the said $4m for his interest in the land. Mr. Rowe has now changed his mind and has now sued SD Ltd, Clinton Thompson and the purchasers to recover damages for fraud and/or for conspiracy and/or for breach of fiduciary duty in respect of the sale of all the properties.

4 The Claimant's Claim

5 In his particulars of claim he alleges that SD Ltd. and/or Clinton Thompson acted in bad faith, against his interest and for improper purposes in relation to his affairs and in breach of trust and/or in breach of their obligation as trustee of the assets of SD Ltd, in that the sale was intended by Clinton Thompson to profit himself directly and or indirectly to the detriment of the Ronald Rowe.

6 Further he alleges that SD Ltd, Clinton Thompson and the purchasers including Mas Trader's Ltd, unlawfully conspired among themselves to injure him by doing the following:

• a) procuring the sale of the lands so as to dwindle the assets of SD Ltd;

• b) procuring the sale of the lands at an undervalue;

• c) planning the destruction of the SD Ltd or achieving a situation in which he would be deprived of his interest in SD Ltd.

7 Defendant's version

8 The Defendants trenchantly deny any fraud or conspiracy. The defence of SD Ltd and Clinton Thompson is that in furtherance of the plan to develop the lands, a financial proposal was put to MSB with the hope of securing funding for the proposal. This was rejected by MSB but accepted by Workers Savings and Loan Bank. Consequently, advertisements and other preliminary works towards the development of the lands were undertaken. Deposits for 30 units were obtained and lodged at the Worker's Bank.

9 The costs of the preliminary reports and plans were funded by another loan from MSB. This loan was acquired by Sunshine Agencies, a company owned by Clinton and Clover Thompson. SD Ltd stood the security.

10 Worker's Bank subsequently reneged on the agreement to provide the loan of $6.m (which sum was to be used to liquidate the loan to MSB and construct the 30 units). As a result SD Ltd had to return the deposits for the 30 units. On the 11 ^th November, 1991, MSB caused their attorneys-at-law to demand settlement of the loan to Sunshine Agencies also and threatened to foreclose on the properties which were secured by SD Ltd.

11 On the 28 ^th November, 1991 the properties were advertised for sale in the Daily Gleaner. On the 10 ^th December, 1991 MSB instituted legal proceedings against SD Ltd for the recovery of the sum of $1m plus interest of $581,513.69. In an effort to avoid the sale of the property by auction, Mr. Clinton Thompson, Mrs. Clover Thompson and Mrs. Marjorie Rowe entered into negotiations with Derrick Mahfood for the sale of the properties. On the 13 ^th December 1991, the Agreement of Sale was signed by Clinton Thompson and Marjorie Rowe. (Mrs. Clover Thompson was no longer actively involved in the company as she had separated from her husband.)

12 Derrick Mahfood gave MSB an undertaking and as a result it did not proceed with its suit against SD Ltd and with the sale of the properties by auction. The sale transaction was conducted between MSB and the purchasers. Hence the purchase price of $2.6 m was paid directly to MSB by the purchasers. SD Ltd did not profit from the sale.

13 There was a separate agreement between SD Ltd and the purchasers for the sale of preliminary plans and reports. The purchase price of those plans was $2.4m and was used to discharge the sum which SA Ltd had borrowed from MSB to acquire the said plans and reports. SD Ltd and Clinton Thompson did not profit from that transaction neither. In July 1995 Derrick Mahfood transferred the properties to ALF Investments Ltd, as his nominee.

14 Application of SD Ltd and Clinton Thompson to strike out the claim

15 SD Ltd and Clinton Thompson have made an application in limine to strike out the claim as being frivolous, vexatious and an abuse of the Court's process. In his affidavit in support, Clinton Thompson avers that the cause of action arose more than 6 years ago hence it is statute barred and that Ronald Rowe has also brought proceedings to wind up the company.

16 Submissions by Ms. Carol Aina for SD Ltd and Clinton Thompson

17 It is her submission that in a company's affairs, the Maxim "majority rules" prevails. Therefore if a shareholder feels that the company is being disadvantaged the proper claimant with the right to sue is the company. She relied on the rule in Foss v Harbottle (1843) 2 Hare 461 in which a shareholder by himself or herself cannot complain about a wrong done to the company by the directors however legitimate the complaint may be. The only true exception to that rule is fraud on the minority. Fraud includes unconscionable abuse of majority power. There must be some attempt to persuade the company to sue before taking minority action. These, she submits are not so in the instant case. Mr. Ronald Rowe was aware of the transaction, which he alleges was fraudulent but failed to bring the action within the 6 years limitation period. This defence has been pleaded in the defence of the 3 ^rd , 4 ^th 5 ^th and 6 ^th defendants.

18 Submissions by Mr. Maurice Frankson:

19 Mr. Maurice Frankson on behalf of Ronald Rowe submits that the matter complained of is not one that could be dealt with by the company because the person against whom the relief was sought, controlled the company. In the circumstances Mr. Rowe is entitled to bring an action in his own name and on behalf of the shareholders. Further a personal wrong has been committed against Mr. Rowe. The acts complained of are fraudulent in character or beyond the powers of the company, hence can be maintained as a personal action.

20 The period of limitation does not begin to run until the fraud was discovered or with due diligence could have been discovered. Mr. Rowe was in no position whatever to become aware of the fraud as he was incarcerated in the US. It was only after he sought legal advice and assistance that the fraudulent conduct of the defendant was unearthed. Further, if the defendants wish to rely on the Statute of Limitation then the defence must be specifically pleaded and it becomes an issue to be determined by a tribunal upon trial.

21 Ronald Rowe's response to the application to strike out

22 In his Affidavit in opposition, and in his supplementary Affidavit in support of his Petition, to wind up which was exhibited, Ronald Rowe deposed that he was deceived by Clinton Thompson who led him to believe that the land was purchased for $2 million dollars. It was misrepresented to him that Clinton Thompson had $500,000.00 and would obtain a loan of $500,000.00 in his personal capacity as his contribution to the purchase price of the properties. On that understanding, he agreed to execute the necessary documents presented to him by the Defendant. He avers that Clinton Thompson's failure to obtain a personal loan for $500,000 and instead obtaining a loan of $1 million, which was secured by SD Limited, placed the company at risk. Such behaviour he claims was dishonest and fraudulent.

23 He was informed by Mr. Clinton Thompson that MSB sold the property pursuant to the exercise of its power of sale. He was unaware of the separate agreement between SD Ltd and the purchasers for the sale of the...